14 August 2002 GST/HST Interpretation 31553 - Transferring Funds Through the Internet

Dear XXXXX:

Thank you for your letter to XXXXX of the XXXXX GST/HST Rulings Centre of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a fee charged in relation to a transfer of funds over the Internet. It was forwarded to us for response and we apologize for the delay in replying to your enquiry.

Your client (the Company), a GST/HST-registered company situated in Canada, provides a service to customers of transferring funds to another person. The following is a synopsis of how the transfer occurs:

A customer (Person A) logs on to the Company's Web site with the intention of transferring funds to another person (Person B). To transfer the funds, Person A provides a credit card number and authorizes a specific amount, along with a service fee for transferring the funds (the Fee), to be charged to the credit card. This money is deposited into the Company's bank account, an on-line cheque is issued in the name of Person B, and the funds are transferred immediately to Person B's account. However, if the required information [e.g., bank account] for Person B is missing, the Company will hold the money until Person B logs on to the Company's Web site and provides the missing information. Once this has been received, the money is transferred to Person B.

Interpretation Requested

You have requested clarification on the GST/HST status of the Fee charged to Person A by the Company.

Interpretation Given

On July 4, 2002, we attempted to contact you for further information on the scenario; however, we did not receive a response to our enquiry. Therefore, we are only able to provide you with the following comments:

Property and services supplied in Canada by a GST/HST registrant are subject to the GST/HST at a rate of 7% or 15%, as applicable, unless they are specifically exempted from tax under Schedule V to the Excise Tax Act (ETA) or zero-rated under Schedule VI to the ETA [i.e., subject to GST/HST at a rate of 0%].

Exempt supplies, which are listed in Schedule V to the ETA, are generally supplies upon which no GST/HST is payable by the recipient of the supply. Part VII of Schedule V to the ETA is the exempting provision for certain supplies of financial services in Canada.

In accordance with paragraph (a) of the definition of "financial service" under subsection 123(1) of the ETA, a financial service includes "the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise".

Therefore, where a person is supplying a service of transferring funds between two other persons, the service would be considered financial service for GST/HST purposes and would be exempt under section 1 of Part VII of Schedule V to the ETA. As such, no GST/HST will be applicable to the service fee charged in respect of the exempt financial service.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

We have enclosed the following publications to assist you: Technical Information Bulletin B-090: GST/HST and Electronic Commerce, GST Memorandum 300-3-9: Financial Services and section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

Marjorie Stevens
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate